The delivery of social housing is a political hot potato. The Government has been accused of wanting to “cleanse” central London of poorer, immigrant families through the cap on benefits whilst their critics have been forced to acknowledge that a silent conspiracy between State and landlords has driven up rents.
Stuck in the middle are developers on whose shoulders much more of the burden of delivering affordable housing is now to fall, following cuts to Government subsidies.
But private developers can only deliver affordable housing if their schemes are viable and it is on the issue of viability that much attention is currently being focussed. The issue affects both new schemes and schemes for which consent has already been granted.
Planning policy typically requires the provision of 25-30% affordable housing. The current state of the housing market, however, often means that schemes can only remain viable with a much lower (or even no) affordable housing provision.
Disputes over viability have reached the courts in the Forest of Dean and Vannes cases.
In the Forest of Dean case, the developer argued for 13% affordable housing, possibly increasing to 20%, against a policy target of 40%. The High Court held that it was permissible to require a higher level of affordable housing, not least because this was a major development of 750 houses, it would take place over a lengthy timescale and it was reasonable to expect that current economic conditions would improve.
The Vannes case involved a 9-flat luxury development in Chelsea. The developer argued that the development would not be viable if it had to include affordable housing. The Planning Inspector took the view that the viability evidence presented by the parties was so contradictory that he was entitled not to place significant weight on it. He was entitled to take into account the stated position of the developer that if there were an affordable housing requirement the development would be unlikely to proceed. The Court of Appeal agreed.
The key lesson for developers – and this applies to new schemes and existing schemes where it may be possible to re-negotiate affordable housing requirements – is that there is a much greater willingness than there has been to be flexible about affordable housing requirements.
That flexibility will be less evident on smaller (short-term) projects.
Indeed, there are a number of mechanisms available to developers and planning authorities to address current and future market conditions.
- reduced contributions – fixing the affordable housing contribution at a level below the policy target which ensures deliverability but with consent usually subject to a tight time limit;
- Deferred contribution – fixing the contribution at a higher level but deferring delivery to a later phase;
- Automatic review – reviewing the viability evidence after, say, 2 years or the start of the next phase – possibly with a minimum acceptable percentage on any given phase;
- Prioritising affordable housing – agreeing on a lower contribution to, say, off-site infrastructure in return for a higher level of affordable housing;
- Tenure/rents – agreeing a level of acceptable rent or intermediate tenure can help bolster the percentage of affordable housing;
- Open-book review – agreeing an upfront provision of affordable housing, subject to a viability review if the developer’s margin exceeds X.
These are just some of the options available to developers and local authorities who, in view of the recent cases, might be well advised to seek a compromise on the issue of affordable housing rather than chance their arms in the courts.